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Nic Cicutti: Will providers ever learn from buying up advice firms?

Some good friends of ours are fridge magnet collectors. It would be stretching things to say they true “memomagnetists” – some of whom own vast collections of magnets spread on special metal boards throughout the house or held in old print cabinets.

Still, every time we go to their house a new magnet has pride of place on their fridge door – the memento of a holiday or a witty aphorism they feel merits being shown off to their guests.

The last time we called in, one newly-acquired magnet caught my eye: “Been there, done that. Then been there several more times because, apparently, I never learn.”

Originally, I thought of it as a reference to my own journey through life, making the same mistakes again and again and not learning from them. But last week, I found myself thinking about that magnet in relation to an interesting article by Money Marketing news editor Justin Cash about the “starkly different strategies” providers are using to achieve more sales.

His comments came in the context of adviser firm acquisitions by providers during 2016. Among them are deals by Standard Life to add planning firm Jones Sheridan, as well as advisers Baigrie Davis and the Munro Partnership, although a prospective purchase of Norwich-based Almary Green fell through in September. About two years ago, it bought Pearson Jones from Skipton Building Society for an “undisclosed sum”, now known to be about £9m.

Cash pointed out that Old Mutual has also added advisers to its new national advice division Old Mutual Wealth Private Client Advisers over the same period, including Cheshire-based advice firm JW Financial Planning, Beaumont Robinson in West Yorkshire and DQS Financial Management, in Devon.

The issue is not so much whether this spending spree is anything new but whether it will work for the product providers concerned

Meanwhile, Schroders also took a “significant” interest in network Best Practice through a stake in its parent Benchmark Capital, which includes IFA Aspect 8, network and financial planning firm Evolution Wealth, its platform Fusion Wealth and technology firm Creative Technologies. Aviva’s distribution strategy, Cash tells us, is different, focusing on “organic growth” by adding advisers to its tied network.

My problem, after writing about this space for many years, is working out how much of it is a genuinely new “recent trend” – or a re-tread of practices that have been the hallmark of the financial services industry since time immemorial.

Let’s start from the basics: providers have always sought to buy distribution, whether through the most prosaic mechanism of paying commission to advisers who sell its products; using inducements to promote themselves and their wares, including gifts, seminars, overseas “training events”; or spending on adviser firms’ “support services”.

Taking stakes in firms they think will help them achieve the same aim is part of a continuum, not a new departure from the norm.

Even Standard Life, whose recent purchases seem to have caused a stir, has long-standing form in this game, its “now I’m in, now I’m out” strategy in relation to buying IFAs having more twists and turns than the Hokey Cokey.

Back in late 2010, Standard Life jettisoned its 15 per cent holding in 2plan Wealth Management and also disposed of the 20 per cent stake in in RSM Bentley Jennison it had bought only two years earlier.

In some cases, these acquisitions involve the same people again and again. Take Baigrie Davis, snapped up by 1825 recently. One of their non-execs is Amanda Davidson, who was previously a director there for almost 10 years.

Amanda is a veteran at this game, having been a director at Holden Meehan, London-based advisers taken over by Bradford & Bingley in 2003, as part of the former building society’s ill-advised splurge – which included Colegrave & Aitchison in Glasgow – aimed at carving out a space for itself in the IFA market. Barely 18 months after that B&B tied itself to Legal & General.

More than 15 years ago, another building society, Bristol & West, reeled in IFA Willis National for £40m, attempting to merge it with Chase de Vere, which it had purchased back in 2000. Chase de Vere was subsequently acquired by Swiss Life.

Towry, that much-loved firm of advisers when under the helm of former chief executive Andrew Fisher, and sold by venture capital firm Palamon Capital Partners to Tilney Bestinvest for £600m in April this year, was once briefly owned by AMP, the Australian insurer.

Aegon, meanwhile, has long wrestled with how to make Origen, its 12-year-old merged entity comprising five IFAs – Advisory & Brokerage, Aurora Financial Group, Elliott Bailey, Momentum Financial Services and Wentworth Rose – a success after years of losses. Last year it admitted that if someone turned up with a basket-load of cash and asked to buy Origen, it would consider selling up.

The issue, then, is not so much whether this spending spree is anything new but whether it will work for the product providers concerned. Past history is littered with examples where it has failed. Still, who knows: maybe like my friends’ fridge magnet, this time the lessons have been learned. Or maybe not.

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19th November 20182:58 pm

Comments

There are 12 comments at the moment, we would love to hear your opinion too.

It appears that many providers in this space are also purchashing the liabilities , putting a price on historical business written by these firms is a due dilly exercise on its own ! When (and it will be when DB transfers come home to roost ) the acquisition breaks will be firmly applied , if not before

It strikes me that providers never fully understand how the advice process works. If you look at an advice practice you are generally buying two things alone, advisers and clients. Unfortunately for the purchaser these are human beings who have a habit of making their own decisions independently of you.

I once worked for an IFA that was acquired by a big bank. The big bank came in and changed the entire culture of the practice, worsening the terms for the advisers along the way and making it a far more target driven business. The advisers obviously then left and so did their clients. Ultimately what had that big bank bought? Really just a collection of PC’s and desks sat in a rented office. Oh and liabilities of course. Lots of liability.

Nic we are both old enough to remember these self-same providers buying up estate agents for eye watering sums, only to sell them back to the original owners at a fraction of the cost.

One of several things I have never tired of saying during my 30 odd years in financial services is that when I first entered I was incredulous at how badly run these big firms were. After having dealt with firms like Shell, ICI. Hoechst, BASF, Dow etc. it was a real eye opener to see how the insurance companies operated. After all this time I’m still amazed at the ineptitude. I always wonder how on earth they make money, until I recall the words of Sherlock Holmes: “When you have eliminated the impossible, whatever remains, however improbable, must be the truth”. The only possible explanation therefore is that these firms profit by giving clients a poor deal.

A waste of capital and shareholders’ money as a rule. Nothing more than corporate greed at the expense of the end consumer and often many hard working advisers who have to do the work to migrate clients to new propositions.

When I read the headline I thought ‘hokey cokey’ and sure enough Nic hit the nail on the head.

I’ve met many advisers who move from company to company time after time and one has to ask why given the upheaval and problems it presents for everyone.

Likewise, medium/large FS firms and also Banks seem to lurch from one approach to another – the costs in doing so must be staggering.

Companies who are good at what they do generally get on and do it – perhaps adapting due to regulation and legislation change and evolving organically. Others seem to lurch this way and that, throwing cash at the current issue they are trying to tackle, chasing after the next pot of gold – and in doing so I suspect little consideration is given to their clients.

As ex-building society I could never understand why senior managements simply couldn’t figure out that herding cats was not a simple exercise, especially when said cats were very independently minded and able to relocate to another home quite easily.

having recently come across two perspective new clients who had been approached/visited by Pru’s direct sales force , i hasten to say , the mis-selling /misleading client days are coming back with a vengeance as they are sales driven/bums on seats
Who ever the ‘distributers’ buy , they will have the same issues, the span of control .

My old boss once told me; the moment you have to buy in business you are doomed.

This may well be, the last throw of the dice for a lot of providers, buying up estate agents in the past was just greed, this is panic !

The worrying thing is, providers are spending on acquisitions because there maybe a return on their investment quickly, rather than investing in new products, innovation and service because returns on this would be slow and many years down the road.